Morning Commentary: Junk mixed in muted trading; House of HR kicks off note offering

By Paul A. Harris

Portland, Ore., Dec. 12 – Trading in cash bonds was muted and mixed on Monday morning as the market awaits an indication on the outlook for interest rates in 2023 later in the week from the Federal Reserve Bank, a New York-based bond trader said.

Another trader, meanwhile spotted both cash bonds and the high-yield CDX 1/8 of a point better at mid-morning, but also reported significantly below-average trading volume.

The Fed's rate-setting Federal Open Market Committee meets Wednesday and is widely expected to render a decision to increase the benchmark Fed Funds rate another 0.5%.

The market will be especially tuned in to central bankers’ accompanying comments for indications on the Fed’s anti-inflationary path in the early part of 2023, sources say.

With the S&P 500 stock index up 0.23% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.19%, or 14 cents, and $75.18.

Bonds priced in last week’s two-part blowout deal from Chart Industries, Inc. saw price improvements in the early going on Monday, the trader said.

The outperformer among the two tranches was the Chart 9½% senior notes due January 2031 (B3/B), which were 101¼ bid, 101¾ offered, up ¼ of a point, the trader said.

Those bonds priced at 97.949 to yield 9 7/8% in a $510 million tranche last Thursday.

Meantime the Chart 7½% senior secured notes due January 2030 (Ba3/B+), at par ½ bid, 101 offered, saw more modest Monday improvement, the source said.

The secured notes came at 98.661 to yield 7¾% in a $1.46 billion tranche.

The $1.97 billion deal was heard to have played to about $9.5 billion of demand across both tranches, with the upsized secured tranche (from $1.31 billion) seeing the greatest demand.

However, a downsizing of the unsecured tranche, to $510 million from $750 million – in the face of $3.5 billion of orders – created heavier aftermarket demand for those bonds, which came cheaper than the secured bonds, and yield higher, sources say.

The dollar-denominated primary market remained quiet on Monday morning and may remain quiet until the market has a chance to parse Wednesday's FOMC meeting, a trader said.

In the euro-denominated new issue market, Belgium-based House of HR NV kicked off a €300 million offering of seven-year senior secured notes (B2/B) with initial guidance setting forth a 9% coupon to yield 10¾% to 11%.

Proceeds will be used to partially repay the bridge loan drawn in connection with the financing for Bain Capital’s acquisition of a majority stake in House of HR.

A similarly structured €425 million offering was withdrawn from the market in October because of market conditions.

Fund flows

High-yield ETFs saw $227 million of daily cash inflows on Friday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $230 million of outflows on Friday, the source said.

The combined funds are tracking $247 million of net outflows on the week that will conclude with Wednesday's close, according to the market source.

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